25th October 2017:
BEIS must rethink exclusion of cheapest technologies
Contradictions, but Helm grasps scale of technology change
Professor Helm’s Cost of Energy Review says that current energy policy, regulation and market design are not ‘fit for purpose’ given the speed of technology change. Helm characterises the government’s energy policy as ‘picking winners’ to a degree not seen since the days of the Central Electricity Generating Board. He correctly highlights digitisation as driving a major structural break in the sector, requiring a radically different approach.
STA Head of Policy Chris Hewett said;
“There are plenty of contradictions in Helm’s Review and his fixation with solar R&D is an unfortunate distraction. However, even if we don’t agree with all of his answers, this Review is asking the big, strategic questions that need to be asked today, given massive technology change. Helm is also rightly looking at how to inject market forces back into energy policy for the benefit of consumers. Something has gone very wrong with the Government’s approach to energy markets when the cheapest & most popular technology is shut out. We hope this Review will prompt an urgent rethink and without further prolonging uncertainty for our industry.”
Professor Helm wants to see major institutional reform in the electricity sector so that a publicly owned National System Operator and Regional System Operators oversee more simplified regulation, with much greater use of competitive tenders and auctions. The STA is keen to see faster opening up of markets for new, smart services, including in network deferment, and more liberalised balancing markets.
Helm also advocates Equivalent Firm Power auctions, where generators would be expected to internalise the costs of variability and of carbon. Helm does not mention the system costs of technology inflexibility.
Chris Hewett said;
“We need to look into his auction proposals in more detail, but it is obviously cheaper and more efficient for renewables variability to be handled at a systems level rather than on a plant by plant basis. Furthermore the cost of variability depends very much on the surrounding system, which is in flux. We are also not clear how auctions would enable a world where consumers, including households and businesses, can play their own part in the energy market through on-site generation, storage and demand-side response.”
The STA does not agree with Helm’s characterisation of solar power as requiring R&D. Many commercial solar companies are leading R&D lab breakthroughs. Multi-junction cells offer a further potential step change in technically achievable efficiencies – however these are very expensive and require manufacturing innovation and market development to reduce costs. Solar is already providing the most cost-effective source of energy in many parts of the world. These cost reductions, which Helm rightly praises, are in large part due to the deployment driven by government and consumer support mechanisms. Helm describes this as a ‘legacy cost’, when many economists would describe it as a very effective long term investment. Today most of the costs of solar in the UK are in the installation, grid connection and other costs, rather than the panels themselves. Going forwards, the great majority of cost reductions are expected to come from these sources, highlighting the importance of national frameworks.
STA Chair Jonathan Selwyn added;
“We welcome the report’s potential to open up much-needed discussion on fairer markets that deliver better outcomes for consumers. The solar industry stands ready to compete on an equal footing with other technologies. However, it is disappointing that the report gives the impression that support mechanisms for early stage renewables are the major cause of rising bills. Recent studies show that support measures drive down the price of renewables, have lowered wholesale prices, and we know that renewable power provides protection against the unpredictable volatility of fossil fuel prices.”
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mission of the Solar Trade Association is to empower the UK solar transformation. We are paving the way for solar to deliver the maximum possible share of UK energy by 2030 by enabling a bigger and better solar industry. We represent storage, solar heat and power, and have a proven track record of winning breakthroughs for solar PV and solar thermal.